As Congress and the White House debate how to patch up the housing market after four years of crisis, one clear lesson has emerged: Political leaders for the first time in decades no longer see the American dream of homeownership as the all-consuming goal it once was.
Against a backdrop of burgeoning foreclosures leading to blighted neighborhoods and rising homelessness, the administration's blueprint for housing finance points out what may seem obvious but is difficult for most politicians to acknowledge: The debts and responsibilities associated with homeownership are not for everyone, and many families are better off renting.
That feature of the White House's plan for winding down mortgage giants Fannie Mae and Freddie Mac helped engender a surprisingly warm response from congressional Republicans, who are intent on minimizing the government's role in housing, while it set off an unexpectedly sharp backlash from administration allies, such as liberal groups and advocates of lower-income Americans.
Housing and Urban Development Secretary Shaun Donovan called it "rebalancing" the government's long-standing preference for homeownership and said that steering people with low incomes and poor credit toward rental housing where appropriate should be the emphasis.
The administration's goal is no longer "for all Americans to become homeowners," Mr. Donovan said, but rather to promote homeownership among those "who have the credit history and financial capacity" as well as desire to own a home.
That contrasts with efforts by Congress and presidents of both parties in past decades to promote homeownership seemingly at any cost. Congress has rarely hesitated to lavish subsidies and tax breaks on homeowners, starting with the extensive network of subsidies for mortgages provided by Fannie, Freddie and the Federal Housing Administration (FHA).
Trillions more dollars are spent subsidizing homeownership — but not renting — through the tax code's mortgage interest deduction for first and second homes, real estate tax deductions, deductions for mortgage insurance and, most recently, tax credits for first-time homeownership.
Douglas M. Bibby, president of the National Multi Housing Council, applauded the administration's "return to a housing framework that understands that not every American wants to or should own a house."
But John Taylor, president of the National Community Reinvestment Coalition, warned that some working-class families could get "locked out of homeownership" under the White House plan. Polls show that most Americans still want to be homeowners.
"There is universal agreement with the principle that people who cannot afford homeownership shouldn't be put in an unsustainable loan," Mr. Taylor said. But, "the administration's proposal may be overly narrowing the window of opportunity for many blue-collar and low- and moderate-income people from realizing their dream of homeownership."
The prickly response from progressive groups contrasts with the welcoming tone from congressional Republican leaders. Rep. Scott Garrett, New Jersey Republican and chairman of the House Financial Services Committee's capital markets subcommittee, said it was "encouraging" that the administration is "on the same page" as Republicans.
Many Republicans blame the housing crisis on the government-induced overexpansion of lending to people with questionable credit during the housing boom.
Even without a change in government direction, the number of renters has been rising while the nation's homeownership rate plunged to 66.5 percent at the end of last year from as high as 69.2 percent at the height of the housing boom in 2004.
That is largely because of the deluge of foreclosures that have made millions of people ineligible to buy homes for years to come and have left some neighborhoods pocked with vacant and deteriorating homes while dispossessed families seek rental housing, apply for public shelters or go homeless.
About a third of U.S. families — more than 37 million households — live in rental housing. That share of the housing market has been constant for decades despite monumental bubbles and bursts.
The administration's plan would steer more people toward rental housing in several ways.
People seeking conventional mortgages guaranteed by Fannie and Freddie would need down payments of least 10 percent — a requirement that would be difficult for many low-income and cash-strapped families to meet.
The FHA would continue to insure low-down-payment loans for low-income people, but it, too, would set solid credit standards, possibly raise down-payment requirements and charge higher insurance premiums to ensure taxpayers are not exposed to inordinate losses.
The administration also wants to maintain Fannie's and Freddie's role as guarantors of loans for apartment housing — an area that did not implode the way the market for single-family mortgages did during the housing crisis.
It would provide further "targeted support" for affordable rental housing through a housing trust fund.
The administration also is proposing to scale back the mortgage-interest deduction and property-tax deductions for the highest-income homeowners, in a first stab at limiting tax breaks for homeownership. A presidential commission in December recommended further limits.
Steve Malanga, senior fellow at the Manhattan Institute, endorsed the change of direction but cautioned against a return to a free and unfettered housing market in the administration's approach.
The "pullback from the notion that the feds should be supporting homebuying at any cost is surely a good thing," he said. But in its place, he said the administration wants to lavish federal subsidies on "affordable" rental housing.
He noted that Mr. Donovan served for four years as housing commissioner of New York City, "a place that has essentially socialized its housing market with policies like rent control, which discourage housing investment, and with elaborate zoning and building restrictions which drive up the cost of housing."
Mr. Malanga said Mr. Donovan last year started a program that could interfere with investors seeking to purchase foreclosed homes from the FHA and turn them into rental housing by giving first dibs on the properties to community and faith-based groups who want to turn them into government-subsidized "affordable" homes.
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